STR Condos as an Opportunity Zone Investment

Short-term rental condos inside an Opportunity Zone present a structure most OZ investors haven’t encountered: individual condo unit ownership, purchased pre-certificate of occupancy, qualifying under original use — with no development risk.

Heather Gustafson of CA South Development and Josh Prywes of Winstead join the show to break down how the ownership structure, management agreement, and OZ compliance work together, and why Nashville is the market they’ve built this model around.

Guests: Heather Gustafson & Josh Prywes

About The Opportunity Zones Podcast

Hosted by OpportunityZones.com founder Jimmy Atkinson, The Opportunity Zones Podcast features guest interviews from fund managers, advisors, policymakers, tax professionals, and other foremost experts in the Opportunity Zones industry.

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Episode Summary

Most opportunity zone investments require investors to take on either development risk or substantial improvement costs in order to meet OZ qualification requirements. This episode explores a structure that bypasses that risk entirely — purchasing a substantially complete condo unit pre-certificate of occupancy, which qualifies under the original use provision of the OZ rules.

Josh Prywes, real estate attorney at Winstead, explains that original use qualification does not strictly require a pre-CO purchase — what matters is that the property has not yet been placed into service for depreciation purposes. As long as that threshold has not been crossed, the property counts as original use for OZ purposes. This closely tracks a treasury regulation example in which a hotel developer builds a hotel in an opportunity zone and sells to an investor before the certificate of occupancy is issued, the investor then places it into service, and that qualifies. Because investors in this structure are coming in post-development but pre-CO, there is no development budget or development schedule to manage. The holding period also starts earlier, aligning more cleanly with the tax deferral window and the ten-year hold for the step-up exclusion.

The Flexible Ownership Model: Condo, STR, and OZ Combined

Rather than investing in a blind fund interest, this structure allows an investor to own a specific condo unit, use it personally within certain limits, rent it out as a short-term rental, and eventually sell it after the ten-year hold — potentially tax-free on appreciation. Josh describes the model as blending real estate ownership, hospitality income, and tax-advantage investing. He notes that because investors are acquiring at the unit level rather than at the building level, the investor base is broader than a typical OZ deal — investors don’t need to commit to a full development raise, and multiple investors can each acquire one or more units with different strategies applied to each.

Josh cautions, however, that the flexible ownership structure only works if the ownership structure, the management agreement, and OZ compliance are all designed together from day one. On personal use specifically, he advises investors to be very careful and to consult with their own tax advisers — while the rules do permit some flexibility between personal use and business use, the totality of circumstances matters and he declines to specify a number.

Why Nashville for Short-Term Rental Investment

Nashville sees over 17 million annual visitors per year and has no state income tax. Heather Gustafson, head of sales and strategic partnerships at CA South Development, describes the city as experiencing significant corporate migration — from Amazon, Oracle, AllianceBernstein, and others — alongside a strong convention, health care, and entertainment economy. Vanderbilt and Belmont universities are also within close proximity to the project locations. The result, Heather argues, is year-round occupancy that does not carry the seasonal volatility found in many other markets.

Josh adds that Nashville has an established track record with OZ investing specifically — prior OZ projects there have been successful, and new census tract designations are anticipated under OZ 2.0.

STRs vs. Hotels: A Different Type of Traveler

Jimmy raises the question of whether Nashville’s growing hotel inventory could crowd out demand for short-term rental condos. Heather’s view is that STR condos attract a fundamentally different type of traveler — those who want more space, a kitchen, a parking space, or simply the experience of living more like a local. She also points to group travel as a key demand driver: golf outings, birthday parties, and family trips where multiple guests want shared common space with private bedrooms. Hotels and STR condos are not competing for the same traveler in most cases, and both product types have room in the market.

The Modernest: CA South Development’s Nashville OZ Project

CA South Development’s condominium project operating under this model is called The Modernest, currently under development at two Nashville locations: the Wedgewood Houston neighborhood and 1107 8th Avenue South in the Gulchview area. Heather describes the Modernest brand as design-forward, managed at a hospitality level, and legally structured to support the flexible ownership model from the ground up.

Wedgewood Houston is described as Nashville’s creative and cultural district, with Soho House, Michelin-star dining, galleries, and Geodise Park nearby. Heather notes the project is positioned early enough in the neighborhood’s emergence that the signs of it becoming fully established are already visible, with limited remaining land within walking distance of the neighborhood’s core. The Wedgewood Houston project is anticipated for delivery by end of 2025 into 2026, and the Gulchview project is on track for delivery in 2027. Both buildings are currently under construction, and sales are underway.

Studio residences at Wedgewood Houston start in the $300,000 range. One-bedroom residences at the Gulchview location are priced from the $500,000s, with three-bedroom units going over $1,000,000 at both locations.

Each Modernest building is amenitized at a hotel level, including a coffee and wine bar, fitness center, yoga studio, cold plunge, and infrared sauna. CA South Development has also developed a preferred hospitality management partner that can optionally manage individual units on behalf of investors on a fully turnkey basis — handling revenue distribution, guest experience, all operations, and asset presentation.

Exit Planning and the Ten-Year Hold

On the exit side, Josh notes that investors should plan for two things: the deferred capital gain will be partially coming due at the 2026 inclusion event midway through the ten-year hold, requiring some liquidity planning; and depreciation flows through during the hold period as well. Because each investor owns through a QOF rather than holding legal title directly, exit dynamics can also vary depending on whether an investor is selling one unit, multiple units, or being swept into a larger building-level sale. Most investors, in his experience, want to exit as quickly as possible after the ten-year mark given the length of the lockup, though the flexibility of the asset allows for a range of strategies.